Additional Interest Rate Hikes in Canada?

Bank of Canada Governor David Dodge said on March 22nd that the global economy in 2006 looks a bit stronger than the bank had anticipated and that there may be a need to increase interest rates further. Dodge told reporters that the bank's 2006 domestic inflation outlook published in January still looks appropriate, and that he sees core inflation just under 2% in 2006 and overall inflation just over 2%.

He said that recent wage increases in Canada were appropriate and he expects improved productivity through 2006 and 2007. Dodge also said that wage increases in the booming western provinces of Alberta and British Columbia didn't seem to be affecting wages elsewhere. Canada´s tight jobs market has spurred concern that rising labor costs could push inflation higher and prompt the central bank to lift interest rates further.

The bank raised its overnight interest rate to 3.75% to stave off inflation in an economy it says is operating at capacity. The bank makes its next rate decision on April 25.